When surfers mistype popular Web addresses, the companies cleverly throw up ads in hidden browser windows, making money off of ads few people see.
As a result, companies like AT&T Corp. (t) and The New York Times are paying for ad impressions even though the ads are buried. In a brazen example last week, surfers who accidentally typed in Washingtonpos.com - leaving off the final "t" - were redirected to a page with an ad for The New York Times, while another browser popped up in front of it.
The complicated scheme centers on innocent typographical errors, but it also includes a Wall Street scandal, a host of shareholder lawsuits and several corporations that some suggest are really a single entity.
At the center of the scheme are a series of companies that register domain names that are slight variations on well-known Web sites - names like yyahoo.com, wwwaol.com and www-msn.com. According to the Network Solutions database of domain name registrations, Powerclick Inc., Global Net 2000 Inc., Data Art Corp. and Stoneybrook Investments have collectively registered hundreds of these sites.
Armed with these registrations, the companies are able to grab traffic aimed at those major Web sites, using a technique called "typosquatting." Among the other sites registered to this group of companies are NBCsport.com, Budwesier.com, and Netcsape.com. (MSNBC is an NBC-Microsoft joint venture.)
There are multiple ways the typosquatters turn typos into revenue.
In the Washingtonpos.com case, visitors found a second browser window popping up on their screens, showing a Web portal called "Pointcom.com." The portal is simply a series of links to Goto.com, which normally pays affiliates 3 cents for delivering traffic to its site.
What viewers probably didn't notice was that in the background, in the original Web browser window, washingtonpos.com showed a Web page with four advertisements on it - ads companies paid for but consumers never saw. Moments later, that site was replaced with another version of Pointcom.com.
Last week, companies like AT&T, The New York Times, Network Solutions Inc. (nsol), BestBuy.com, BizRate.com and Capital One bank were regularly included among these wasted ads, which were served by Advertising.com. Logos on the page indicated it was served up by a Web hosting company named Global 2000.
Finally, when visitors try to close their browsers or otherwise leave Pointcom.com, there is one more attempt at monetizing the mistake. Another browser window pops up, with a different Pointcom.com site. This one contains five advertisements, most served by Websitesponsors.com.
Dozens of other typosquatter domains owned by Global Net follow the same ritual.
Typosquatting is not new. But the intricate network of company names purchased by the affiliated typosquatters allows them to grab clicks intended for Web sites such as Yahoo! Inc.'s (yhoo) Yahoo and Microsoft Corp.'s (msft) MSN.com and turn that traffic into revenue generated by bogus advertising. The firms' success exposes flaws in the Internet's domain name system and in two of the Web's prominent revenue models - affiliate programs and advertising reselling.
"Advertisers would be incredibly alarmed to learn that they were getting misspelled domains as a way to drive traffic," said Rich LeFurgy, chairman of the Internet Advertising Bureau. "Most advertisers would be alarmed at the lack of quality of these impressions. It's kind of bait-and-switch from an impression standpoint."
Apparently placed unwittingly in the middle of the scam are advertising resellers such as 24/7 Media Inc., Advertising.com Inc. and iBoost Technology Inc. These companies contract with large advertisers and then automatically feed ads onto thousands of Web sites. The automated method of placing ads on sites can make tracking where those ads end up a complicated effort.
On its Web site, Powerclick.com only hints that typosquatting is part of its operations. The Web site indicates that the firm is "an online marketplace that facilitates introductions between consumers who search the Internet for information, products or services and advertisers."
According to Earl Gilbrech, a member of Powerclick's board of directors, the company "buys clicks" from resellers engaged in typosquatting and uses them to promote its own Web sites. Gilbrech said he didn't think there was anything wrong with using user errors to grow traffic.
"Do I see that much harm in it? No. I think it's a creative business practice," he said.
Getting clicks by accident can apparently be big business. In a press release filed in February of this year, Powerclick claimed to have "200,000 daily unique visitors" who generate 5 cents per unique click. At that rate, the company said, "Powerclick will produce in excess of $10,000 a day, $300,000 per month or nearly $4,000,000 a year in revenues." Another press release claimed 5 million monthly hits. Meanwhile, the Pointcom.com portal had 273,000 unique users in July, according to Web traffic analyst firm Media Metrix Inc. Web traffic like that was enough to attract investment in Powerclick earlier this year from eConnect, an over-the-counter bulletin board stock. eConnect, in a filing with the Securities and Exchange Commission, said it bought 50 percent of Powerclick in February for $1.3 million in stock and $1.2 million cash. The company had planned to use Powerclick's traffic to promote e-commerce transaction services it's developing, according to a press release.
But the acquisition hit a bump in the road sometime later, and on Aug. 21, eConnect sued Powerclick claiming the company made "fraudulent misrepresentations in connection with the [eCompany's purchase] of an equity stake" in Powerclick. Powerclick has countersued. An eConnect spokesperson said the two companies are "working to amicably resolve all legal issues and expect to do so."
eConnect itself was hit with more than 20 shareholder lawsuits in March and April; the lawsuits claim the company made several false statements that helped take the stock on a roller-coaster ride from about $1.50 on Feb. 25 to 21 7/8 on March 9, then back down to 13/4 on March 29. Among those alleged false statements: that eConnect made misrepresentations concerning the revenue generated from its Powerclick Web site. The SEC also filed complaints against eConnect in March.
Gilbrech says Powerclick doesn't engage in typosquatting and doesn't own any "misspelled" domains, but the domain name registry lists Powerclick as the owner of dozens of domains, such as wwwicq.com and drkop.com. He described that as a clerical error and indicated that those names should really be registered to another company.
He did say Powerclick buys some clicks from a company named Stoneybrook Investments and resells them to other Web pages, but he could not cite any clients. He also said he thought there was some connection between Stoneybrook and Data Art, believing Stoneybrook at one point bought a series of domain names from Data Art.
But he denied having ever heard of the fourth company that has been mentioned in connection with the scheme, Global Net 2000.
However, there is information suggesting the companies are linked. In its domain registration information, Powerclick is sometimes listed as having the same California address as Data Art Enterprises.
Pointcom.com - the portal site where many accidental visitors end up - lists Global2000.com as its domain name server; calls to Pointcom.com's registered phone number are answered by a receptionist saying "Global." And Global 2000, in one of its domain registry records, lists its domain name servers as "Powerclick.com."
Others have noted the connection, too. In its Aug. 10 domain name dispute decision, the World Intellectual Property Organization awarded Yahoo Inc. 36 domains that had been registered to the group of companies - domains like "ayhoo.com" and "myahoo.com." In its ruling, the panel agreed to consider Global Net 2000 Inc., Powerclick Inc., Stoneybrook Investments, DataArt Enterprises Inc., and Data Art Corp. as a single "respondent" - noting that there was overlapping information in most of the domain name registration tied to those entities.
Reuters, Compaq Computer Corp.'s Altavista.com and Microsoft have also won back domains from the group of typosquatters in recent months.
Phone messages requesting comment left at the offices of Global 2000 and Pointcom.com were not returned.
But despite the WIPO rulings, the typosquatters still own hundreds of domains and continue to work the Internet's advertising and affiliate marketing programs to their advantage.
Many Web sites outsource advertising sales to intermediary firms like Advertising.com, 24/7 Media or Websitesponsors.com, now owned by iBoost. These companies sell marketing packages to clients like AT&T, Onvia.com and America Online. They then promise to display those ads on partner Web sites. Those partners - in this case, sites like Pointcom.com or Washingtonpos.com - are paid either on a "click-through" basis or an "impression" basis, which mean that merely displaying the ad racks up a few pennies for the Web site. Websitesponsors, for example, says it pays affiliates 17 cents for every click-through. Goto.com, meanwhile, normally pays 3 cents every time a user is "transferred" to Goto's site from an affiliate site, according to spokeswoman Kasey Byrne.
Byrne said she didn't necessarily think Pointcom's business strategy was viable, but she also didn't believe there was anything wrong with trying to make money out of Web users' typos.
"I don't agree that owning a misspelling is a deceptive billing practice," she said. "I don't agree cybersquatting is illegal or should be. ... It's like real estate. You own it."
A spokesperson for Advertising.com, meanwhile, said the company pays both for click-throughs and mere impressions. Until MSNBC.com contacted the company about the ads on Powerclick sites, Advertising.com was not aware that its ads were appearing on pages, like Washingtonpos.com, that most users never saw. After the MSNBC.com inquiry, the company shut down Pointcom.com's account and stopped serving ads to pages like Washingtonpos.com.
Tom McMahon, general counsel of Advertising.com, said his company had served nearly 3 million ads to Pointcom.com during the past six months. It paid the firm both for ad impressions and for click-throughs during that time; McMahon said Pointcom.com had earned about $4,000 for ad impressions and believed some of that came from legitimate sites operated by Pointcom.
He said Pointcom's behavior broke Advertising.com's terms of service, but he said the company got away with it for six months because Pointcom's business was a small fraction of the 18 billion advertisements Advertising.com has served up during the past six months.
"We're in the process of assessing what legal action we can take," he said.
MSNBC found ads from 24/7 Media on one typosquatter site, www-msn.com. It is unclear whether Powerclick is paid per impression or per click-through for that site. On Monday, a counter on that page indicated it had received more than 2,680 hits. 24/7 Media did not return calls.
The Websitesponsor.com ads that pop up when browsers try to close out of the extra windows created by visits to sites like Washingtonpos.com generate income for Powerclick only if a visitor clicks through to the underlying Web site. That's not as nearly as problematic, LeFurgy said, because even though the ad is a surprise, consumers who click through are actively agreeing to head to a sponsor's site.
"If payment is based on performance ... it mitigates the issue because the user is actually choosing to go to that site," he said. "It does make a difference." But he added: "This is technology getting around the system. It doesn't deliver the fundamental quality advertising you're looking for."